IN THE HIGH COURT OF DELHI AT NEW DELHI

MAC. APP. No.596/2008

Date of Decision: 26th March, 2009
NATIONAL INSURANCE CO. LTD.
Appellant.
Through: Mr. Pradeep Gaur and Mr. Amit
Kumar Pandey, Advocates for
the appellant.
Versus
KANIKA SABOO & ORS.
Respondents.
Through: Mr. Arvind Dhingra and
Mr.Pardeep Kumar,
Advocates for the Respondent.
CORAM:HONBLE MR. JUSTICE J.R. MIDHA
1.

Whether Reporters of Local papers may

Be allowed to see the judgment?

2.

To be referred to the Reporters or not?

3.

Whether the judgment should be

reported in the Digest?
ORDER (Oral)

CMs No.17078/2008 and 1303/2009 in

MAC APP.No.596/2008
1.

The appellant has challenged the award of the learned

Tribunal whereby the compensation has been awarded to

claimants/respondents. The challenge is on the ground that
the driver was not holding a valid driving licence at the time
of the accident and, therefore, the Insurance Company is
not liable.
2.

The appeal is pending for hearing. By an interlocutory

order, this Court has directed the Insurance Company to

deposit the entire award amount along with interest with
the learned Tribunal.

MAC APP.No.596/2008

3.

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The appellant has raised an issue of deduction of TDS

from the interest amount.

4.

It is submitted by the learned counsel for the appellant

that in all cases of deposit of interest amount exceeding

Rs.50,000/- with learned Tribunal or with this Court in
pursuance to an interim order in pending appeals, the
appellant is deducting the TDS and is depositing the
remaining amount with the learned Tribunal or with this
Court, as the case may be, and the TDS certificate is issued
in the name of the learned Tribunal /Registrar General of
this Court.
5.

The learned counsel for the claimants/respondents

No.1 to 9 has strongly opposed the deduction of the TDS on

the ground that the deposit of interest with the Court under
an interim order is not payment of income by way of
interest within the meaning of Section 194A of the IncomeTax Act, 1961 and, therefore, Section 194A would not apply.
6.

Section 194A (1) and (3) (ix) of the Income-Tax Act are

reproduced hereunder:SECTION 194A. (1)

Any
person,
not
being an individual or a Hindu
undivided family, who is responsible
for paying to a resident any income by
way of interest other than income by
way of Interest on securities, shall
at the time of credit of such income to
the account of the payee or at the
time of payment thereof in cash or by
issue of a cheque or draft or by any
other mode, whichever is earlier,
deduct income-tax thereon at the
rates in force.

MAC APP.No.596/2008

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SECTION
194A (3) - The provisions
of sub-section (1) shall not apply
(ix) to such income credited or paid
by
way
of
interest
on
the
compensation amount awarded by the
Motor Accidents Claims Tribunal where
the amount of such income or, as the
case may, the aggregate of the
amounts of such income credited or
paid during the financial year does not
exceed fifty thousand rupees.
7.

Section 194A (1) has three ingredients which are as

under:(i)

There is payment of income by way of interest

exceeding Rs.50,000/-.

(ii)

The person making payment is responsible to

make the payment.

(iii)

The person receiving the payment is entitled to

receive payment of income by way of interest.

8.

None of the essential requirements of the Section

194A of the Income-Tax Act are satisfied in the present case.

The reasons are as under:(i)

The deposit of interest amount under the order of

this Court pending hearing/decision of the appeal
is not payment of income.

(ii)

The

appellant

is

not

responsible

to

make

payment of income by way of interest to the

Court.
MAC APP.No.596/2008

page 3 of 6

(iii)

The Court is not entitled to any payment of

income by way of interest from the Appellant.

9.

Section 194A(3)(ix) is attracted only to cases where

Section 194A(1) is applicable. Since Section 194A(1) is not

applicable to the present case, Section 194A(3)(ix) shall also
not be attracted.
10.

There is another aspect of this matter. The purpose of

deduction of TDS is to deduct the tax at source is to identify

the income of interest above Rs.50,000/- and also deduct
tax at source and a TDS certificate is issued to the recipient
to enable him to either take adjustment of TDS against his
tax liability or to seek refund if his income is below taxable
limit.

However, the Court is not entitled to receive any

payment of income from the appellant and, therefore, if the

TDS certificate is issued to the Court, the Court can neither
adjust the TDS certificate nor seek the refund against any
head. Rather there is no head for deposit of TDS in favour
of the Court. At a later stage, if the appeal is decided in
favour of the appellant and the money is to be refunded
back to the appellant, the appellant cannot even get the
refund of the TDS amount. On the other hand, if the appeal
is dismissed and the interest amount is released to the
claimants, they also cannot get the credit of the TDS. This
clearly demonstrates that deduction of TDS by the appellant
in the name of the Court and issuance of TDS certificate to
MAC APP.No.596/2008

page 4 of 6

the Court is not within the ambit of Section 194A of the

Income-Tax Act, 1961. It is well settled that if two
interpretations are possible then the one interpretation
which leads to achieving the object of the provision should
be applied.
11.

Since the issue involved in this case pertains to the

Income-tax, it was considered appropriate to seek the

opinion

of

the

Standing

Counsel

of

the

Income-Tax

Department. This court, therefore, requested the learned

Standing Counsel, Mr. Sanjiv Sabharwal to assist this Court.
12.

Mr. Sabharwal, the learned Standing Counsel of the

Income-Tax

Department

has

been

apprised

of

the

controversy and he is present in the Court. Mr. Sabharwal

submits that the appellant is liable to deduct the TDS under
Section 194A of the Income-Tax Act in cases where the
payment of any income by way of interest exceeding
Rs.50,000/- is made directly by the appellant to the
claimant. The learned Standing Counsel submits that the
deposit of interest amount with the Court under the interim
direction of the Court pending final determination of the
rights in appeal is only a inchoate right and, therefore,
Section 194A does not apply and no TDS can be deducted.
The learned Standing Counsel refers and relies upon the
judgment of Apex Court in the case of Commissioner of
Income Tax, West Bengal Vs. Hindustan Housing and Land
MAC APP.No.596/2008

page 5 of 6

Development Trust, 161 (ITR) 425 (1986).

The learned

Standing Counsel further submits that upon the final

decision of the appeal, if the appeal is allowed, then
appellant would be entitled to refund of the deposit amount.
On the other hand if the appeal is dismissed, the interest
amount lying deposited with the Court, would be treated as
income and the claimants will be liable to pay the IncomeTax and, therefore, in order to protect the interest of the
Revenue Department, the Court may send notice to the
Income-Tax Department before release of the amount and
may call for Income Tax Clearance Certificate or deposit of
the Income Tax by the claimant with the Income-Tax
Department.
13.

I agree with the opinion of the learned Standing

Counsel of the Income-Tax Department.

I, therefore, hold

that Section 194A of the Income-Tax Act does not apply to

the

cases

of

deposit

of

interest

amount

exceeding

Rs.50,000/- by the appellant under interim direction of the

Court pending the final determination of the appeal.

MARCH 26, 2009

aj
MAC APP.No.596/2008

J.R. MIDHA, J.

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